SCA Sustainability Webinar: The Profitability of Coffee Farming

Update on February 9, 2018:We have included a Q&A session from the webinar at the end of this post.

Update on January 31, 2018: Thanks to our attendees and panelists who joined this SCA Sustainability Webinar yesterday. The number of registrations overwhelmed the webinar system we use, preventing many registrants from joining the session. We apologize to all who weren’t able to join the session and will make sure that we fix this issue before our next webinar. If you have any questions or comments, please get in touch via sustainability@sca.coffee.

Join us on Tuesday, January 30th, at 8:00am PST / 4:00pm GMT for a special webinar on coffee farm profitability hosted by the SCA Sustainability Center. A panel of industry leaders will use the literature review released by the SCA at the end of 2017 as a departure point to tackle difficult questions related to the profitability of coffee farming. Do increased yields consistently correlate to profitability on coffee farms? Do price premiums for coffee taste quality justify farmer investments? What strategies are producers and buyers using to address farm profitability? What research and data is needed to support farmers and their businesses? Learn about our moderator and panelists below.

Moderator: Vera Espindola Rafael

With a Bachelor in International Business and Masters in Development Economics, Vera began her career in coffee researching the value chain of coffee for Anacafé in Guatemala. From there she moved into a role at Utz overseeing the coffee program in Africa, Asia and Latin America. Since April of 2016, Vera has worked with the Secretary of Agriculture in Mexico (SAGARPA) on its Plan for the Care of Coffee, a program initiated in October 2015. As the program’s Director of Sustainability and Shared Value, she focuses on harmonizing the elements of sustainable coffee production in the Plan as well as overseeing the market strategy for coffee, one of the Plan’s 36 strategy crops. Vera serves on the Profitability Working Group of the SCA Sustainability Center and has been a volunteer leader since October of 2015.

Panelist: Alex Keller

Alex is, first and foremost, a coffee producer and roaster. Alex has a Bachelor’s degree in Business Administration and since 1993 he has worked for Finca Santa Isabel, which is located in Santa Rosa, Guatemala and which obtained Rainforest Alliance certification in 1997 and organic certification in 2007. He has been a Director of Anacafe, the Guatemalan National Coffee Association, for 11 years and served as the organization’s Vice President in 2015 and 2016. He is also the President of Funcafe, the Vice President of Procafe, and a member of the Profitability Working Group of the SCA Sustainability Center, and in 2013 he spoke at the SCA’s Re:co Symposium about his experiences with coffee leaf rust and the challenges facing coffee producers.

Panelist: Aleco Chigounis

Aleco is the co-founder and president of Red Fox Coffee Merchants. Aleco grew up in his family’s coffee roasting business in Philadelphia, PA, learning that business from the bottom up. After completing his B.S. in International Relations at St. Joseph’s University in Philadelphia, Aleco moved to Costa Rica to work on a coffee farm. After four months, Aleco moved down the mountain to San Jose where he embarked on a 4-year stint working for trading houses including the Neumann Kaffee Gruppe. After leaving Costa Rica, Aleco spent a year working with Ric Rhinehart in L.A. before serving as Chief Coffee Buyer for Stumptown Coffee Roasters in Portland, OR. He moved to California in March 2012 to join the buying team at Coffee Shrub and Sweet Maria’s. Aleco opened the doors to Red Fox Coffee Merchants on January 1, 2014.

Panelist: Edie Baker

Edie Baker and her Husband Andy started Chocolate Fish Coffee in 2008 in Sacramento, CA. Edie Was an RN for over 20 years and a Medical Sales Rep who always loved coffee and loved business. Owning and operating a coffeehouse she enjoys wearing many hats and having her hand in every part of the business. 2 years after the first café opened, after a Roasters Guild trip to Guatemala, they came home, bought a Dietrich roaster and began practicing until the quality and taste were high enough to bring in their café. That’s when the business added Roasters to their name. Since that first trip they were inspired to learn as much about the process of coffee from the seed to our cup and continued with trips to Central & South America to meet producers and find the best tasting coffee. The core value at CFCR is to “make coffee accessible to everyone” it’s done by educating customers about specialty coffee and the producers whose lives depend on coffee. Winning 2nd overall at the Golden Bean North America Roasters Competition was a nod to the producers who grow great coffee. This year, they will open a third coffeehouse and continue to grow their wholesale business.

Q&A

Question, Felipe Gurdian: How do you assess the spread between farm gate price and FOB price, if at all? – the cost of bringing coffee to export, milling, the overhead of farmer associations/local buyers, exporters and importers, to ultimately assess the efficiency of the export/import exercise and ultimately final price to farmer?

Edie Baker: Each producer we work with is different. We communicate with our producers to ensure they are happy with the price they receive and if not we work directly or through their importer to ensure they are happy. We purchase the best coffee of their crops, so they receive a premium price. Some producers also sell portions of their coffee to other markets at lower quality and lower sales. Some producers have control over the growing milling and exporting so they are receiving larger portions of the profit where others use a third-party mill and will receive different portions of the profit.

Question, Olga Cuellar:How are farmers coping with quality and sustainable standards that are more and more a mandatory requirement? When the answer is yes, maybe they are receiving premiums but in order to comply it costs more? Is that the case in your experience? Are you communicating this to your buyers? For Aleco and Edie: are you receiving this information? If yes, are you paying more when farmers raised the issue that producing that specific coffee costs more?

EB: Yes, we just experienced this with one grower this year so we have agreed on a 5% increase on his portion.

Aleco Chigounis: We’ve found that a significant portion of the producers in “our” groups are willing to do what it takes to produce better quality because we are offering financial reward that supersedes their costs and then some. Our oldest relationships in Colombia work well in this model and producers in Peru are beginning to see the benefit to our system. What we ask of the producers absolutely costs more and they need to be compensated for that and then some. We have loose conversations with our customers about this. Farmers (95+% smallholders) we work with never say it costs more even when we know it does.

Question, Alejandro Molina:The report “The Powerful Role of Intangibles in the Coffee Value Chain” references that 90% of the value of coffee is being retained in consuming countries whereas 10% is being retained in producing countries. How can we innovate along the supply chain and create more intangibles for the origin side of the business?

EB: I’m not sure if this report talked about specialty coffee or commodity coffee, our producers are getting more that the 10%. For example, our producer in Guatemala who has control of his coffee from growing milling and exporting receives 32% and after all production costs and shrinkage we retain approx. 42% of the profit from our wholesale sales. Those producers with more control over the entire process are receiving higher prices in our model, and we receive better quality coffee.

Question, Carolyn Barker-Villena:What role do you think NGOs can play in supporting the relationships between roasters and farmers to help promote more ROI for farmers and farm organizations?

AC: Find a way to get producers the necessary pre‑financing before and during the harvest season. Any other answer would be less significant.

Question, Marianella Baez Jost:Would the SCA ever consider creating a “trading” platform to link Small Producers directly to Small Roasters, thus ensuring accessibility to those who can’t travel to origin to source but want direct access to great coffees?

Kim Elena Ionescu: We would be unlikely to set up an actual trading platform for a variety of reasons (including our corporate structure and the capital required to support trading), but SCA connects small producers to small roasters in a variety of ways including at events and trips to coffee-producing countries. Additionally, the Coffee Roasters Guild and the Producer’s Guild are communities within the SCA that aim to serve the specific needs of two groups you identify above and to strengthen relationships between producers and roasters of specialty coffee.

Question, John Kehoe:In cocoa and coffee, crop diversification is being a considered an important consideration for farmer incomes, profitability and cash flow. Can our speakers comment on that and does SCA have any good data on this? We have heard that price and quality alone does not solve the sustainability challenges farmers face.

Alex Keller: With the rust crisis in Guatemala, Anacafe did a survey and found that communities that were least diversified were the most affected. Same happens with low coffee price markets. The most resilient seemed to be medium producers who had alternative sources of income and efficient overhead management. The most affected were small farms and large farms who were 100% dependent on coffee.

So yes, today diversification is in everybody’s mind, including mine. For example, I am motivating my children to study other professions…to look for more options.

Two years ago, our farm’s vision was to replant only with coffee. Now it isn’t anymore. We are looking into diversifying into honey, livestock, hardwood, vegetables, etc. It is important to choose crops that are suited for your local conditions and flora.

We are also considering opening the farm to visitors for tours. Having people at the farm creates a strong connection and a clearer understanding and appreciation for what is being grown.

Since we were severely affected by leaf rust, replanting the farm with new varieties that are more resistant to rust and local conditions, will require at least a 10-year plan. In addition, replanting will represent a negative cash flow for 3-4 years. So, from a cash flow point of view, it makes sense to diversify also into faster producing options…as well as, finding takers that are interested in the coffee for the medium term.

Others are also considering crops they can sell in the local retail market, because it gives them a hedge against currency fluctuations.

This topic is extensive.

Question, Kenneth Exner: I am just as concerned for the picker as the farmer getting good pay.

AK: Great question! It is important that the whole coffee chain becomes more informed about this. To truly thrive, the coffee value chain as a whole needs to present competitive conditions for producers and farm workers. If not, people will look for opportunities and work elsewhere or maybe even migrate. Due to things like rust and drought, productivity is lower in many farms, which directly affects the amount to be picked. In addition, present low prices also have an impact, especially in commercial qualities. We can also look at this from a quality perspective. The coffee’s quality is always going to be better if the people producing it are happy.

KEI: I’m also glad to hear that you’re thinking about the whole value chain. The entire coffee industry depends on farm workers, who are more socially and economically vulnerable – like agricultural workers worldwide – than any other group. In recent years, a handful of leading farms, companies, and organizations have partnered to support farm workers in a variety of ways, including understanding the relationship between farm profitability and good working conditions and wages for pickers.

Register here to join us. Can’t make it to the webinar? Email us your questions at sustainability@sca.coffee and we’ll include them in the session. A recording of the webinar will be made available here on SCA News.